About This Benefit

What Is Included?

No additional premium

LTCSO is not additional monetary benefit, but an early payout of a death benefit to the insured rather than to a designated beneficiary

LTCSO allows the owner of the AAFMAA policy the option of converting the death benefit on an eligible insured life—normally payable only upon the death of the insured—into regular periodic payments prior to death, specifically to defray the cost of nursing home, custodial or home health care for the insured

Beneficiaries continue to receive AAFMAA Survivor Assistance Services at the time of the member’s death, even if they elected LTCSO. Plus, AAFMAA Membership continues during the payout period

Who Is It For?

Any insured person who has attained age 60 and has been covered by an AAFMAA Value-Added or Wealth Builder Life Insurance policy for two or more years and has been confined to a long-term care nursing facility, or who has required continuous home nursing care for the preceding four months or more

Medical certification of need required for continued long-term care during application process

An annual recertification is necessary to ensure compliance with IRS guidelines

In cases where the insured is not the owner of the plan, it is the owner who must apply for LTCSO on behalf of the insured

The insured must require and be receiving long-term care

Attending physician certification required

**LTCSO is considered a qualified living benefit under IRS regulations. As such, the net amount of the death benefit is excluded from gross income and, as long as the total annual payments do not exceed IRS guidelines, it is not generally subject to federal or state income tax. AAFMAA provides an IRS Form 1099-LTC each year summarizing all distributions. If an irrevocable trust is the plan owner, a tax advisor should be consulted prior to exercising this option.

Payment

General - Standard disbursement of LTCSO benefit is monthly for a fixed period of 50 months

Any coverage that generates payments up to the current IRS annual tax-free maximum may be converted (maximum for 2020 is $380 per day or coverage amount of $575,000 for the 50 months)

The monthly payment is the approved death benefit amount as of application approval less any outstanding loans divided by 50 months

Administrative costs - to be paid by the policyholder and deducted from monthly payments. This fee will be modest and set to cover costs. The amount is determined when LTCSO application is approved. Fee remains fixed for 50 months or until death, if earlier

Payments may be made to the owner, the insured, deposited to a bank account or paid directly to a long-term care facility as designated by plan owner

Once LTCSO application approved, all subsequent premiums for amounts converted are terminated by AAFMAA

For any amounts not converted to LTCSO, premiums are charged or remaining amounts may be converted to Reduced Paid Up or other alternatives available

Important to Know

By applying the death benefit to periodic payments before death, the insurance value is impacted as of LTCSO approval by AAFMAA

If the policy selected for conversion to LTCSO exceeds the IRS tax-free maximum, the policy will be amended as necessary on an individual basis. Any excess insurance coverage above LTCSO amount will remain in effect with an adjusted premium

All other previous policy provisions and beneficiary(ies) remain unchanged

Once LTCSO is selected, and all payments are made for the fixed period, there will be no residual funds from the LTCSO portion that pass to a beneficiary

Should the insured pass away before monthly payout period ends, remaining death benefit is paid to the designated beneficiary as authorized by the owner

If no selection is made, default is lump sum payment

If a value-added policy contains a designated irrevocable beneficiary, converting to LTCSO will require notarized approval by the designated irrevocable beneficiary

The application for and subsequent approval of a LTCSO will be considered irrevocable except that an owner may elect to discontinue the option and reinstate insurance benefits as a Reduced Paid Up benefit plan if, and ONLY if, the annual recertification fails to comply with IRS code. Under this condition, the death benefit would be re-established at a level supported by the remaining value of LTCSO at the time it is discontinued. However, once discontinued, there will be no option to reinstate a subsequent LTCSO election of that insurance policy

Contact a Representative:

Copyright 2020 American Armed Forces Mutual Aid Association. 102 Sheridan Avenue, Ft. Myer, VA 22211-1110
The U.S. Government does not sanction, recommend or encourage the sale of these life insurance products. Subsidized life insurance may be available from the Federal Government.